Category Archives: The Blue Ocean Management

The Blue Ocean Management Reviews Fragmented Information and Forecasts Short Term and Long Term Market Trends for Value Investors.

Autonomous Air Defense Industry

Autonomous Electric Vehicle makers have enjoyed US markets overwhelming enthusiasm in 2020 (Yergin, 2021, April 23). However, the other sector that has heavy investment on autonomous operation and backed by the US congress is the US Air Defense industry, which is largely overlooked. 

The US congress passed the $740 billion defense authorization bill in 2021 January, which expanded automation and promotion of autonomous operations across all the services area: in the air, on the ground, and under water (Pasztor, 2021, February 13).

For example, the US Marines had Kaman Corp. to devise ways to use autonomous choppers to deliver supplies to remote outposts, which was needed in Afghanistan combat due to the height.

With the US Defense Department’s primary research arm, Lockheed Martin Corp.’s Sikorsky unit has worked on autonomous helicopters for various missions (Pasztor, 2021, February 13)

The US Navy admirals plans to have 120 vessels that operate without crews, as US Congress gives a easy pass. In addition, US Navy wants to run autonomous undersea vehicles to carry cargo, divers and to run intelligence to gather mines. They have worked with Boeing and Huntington Ingalls Industries Inc. (Pasztor, 2021, February 13).

The US Air Force has autonomous jet fighter paired with a traditional ones, which shows the advantages in mock dogfights. It also has autonomous areal tankers operating soon above the Earth operating without crews. Lastly, the US Army is updating Bradley fighting vehicle that transport ground troops to operate without human inside. It was 1980s version (Pasztor, 2021, February 13).

The US defense has made great effort on automation indeed and seems to stay that way for a long time even Biden administration, considering all noises from Ukraine border and the Southwest sea where Russia and China has flexed their military muscles.

Cited as:

Rachel Kim (2021, April 23). Autonomous Air Defense Industry, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2021/04/23/autonomous-air-defense-industry/

Reference:

Pasztor, A. (2021, February 13). Forget Self-Driving Cars—the Pentagon Wants Autonomous Ships, Choppers and Jets, Wall Street Journal, retrieved from: https://www.wsj.com/articles/forget-self-driving-carsthe-pentagon-wants-autonomous-ships-choppers-and-jets-11613212200

Yergin, D. (2021, April 23). How Electric, Self-Driving Cars and Ride-Hailing Will Transform the Car Industry, Wall Street Journal, retrieved from: https://www.wsj.com/articles/how-electric-self-driving-cars-and-ride-hailing-will-transform-the-car-industry-11619189966

NVIDA’s Acquisition Deal of Arm Holdings in Doubt & Hostility in UK

Nvida Corp.(NVDA) proposed $40 billion deal to buy Arm, British chip designer company, which seems to face regulatory challenge around the world. For now, that starts with British government (Woo & Sylvers, 2021, April 19). When SoftBank bought it  in 2016, it made promise to keep jobs in Britain (Woo. & Dou, 2016, July 18). For the same reason, Labour Party is against Nvida’s acquisition as it sees potential job losses.

Nvida is founded in 1993Santa Clara, CA, in 1993 by Jensen Huang and becomes one of the biggest chip designer for graphics for videogames, data analytic and automation with artificial intelligence (Fitch & Woo, 2020, September 13).

Arm Holdings is one of the global semiconductor companies, who designs and licenses  90% of smartphone chips worldwide. Particularly, it is known for its least energy consuming chip designing. It has partnership with Samsung Electronics Co., Qualcomm, and others. As  Arm Holding had been working with global chip producers as a supplier, it announced its “A Shared Purpose” that would not have exclusive relationship with any partner. SoftBank Group Corp bought it at $32 billion and sold it at $40 billion to Nvida (Fitch & Woo, 2020, September 13). 

This deal offers a great position to Nvida to compete against Intel and to be able to work with smartphone producers including Apple. Particularly in early 2021, there are great attention to chip makers between China and USA. We will see how this plays out in turbulent global politics.

Please cited as :

Rachel Kim (2021, April 22). NVIDA’s Acquisition Deal of Arm Holdings in Doubt & Hostility in UK, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement-com/market-trend-foresight/game-industry/

References:

Woo, S. & Dou, E. (2016, July 18). SoftBank to Buy ARM Holdings for $32 Billion, Wall Street Journal, retrieved from: https://www.wsj.com/articles/softbank-agrees-to-buy-arm-holdings-for-more-than-32-billion-1468808434

Fitch, A. & Woo, S. (2020, September 13). What Are Nvidia and Arm? And Why Are They Combining?, Wall Street Journal, retrieved from: https://www.wsj.com/articles/who-are-nvidia-and-arm-and-why-are-they-talking-about-getting-together-11599938641

Woo, S. & Sylvers, E. (2021, April 19). Nvidia’s $40 Billion Deal for Arm Faces U.K. National-Security Probe, Wall Street Journal, retrieved from: https://www.wsj.com/articles/u-k-starts-national-security-probe-of-nvidia-s-40-billion-deal-to-buy-arm-11618837683

Chinese Bond Market Jittery

When China Huarong Asset Management Co. missed its March deadline when it planned to release its 2020 financial results, investors sold off its bonds and placed them below face value. China Huarong Asset Management Co. sold off its owned US dollar bond. Huarong Asset Management is mostly owned by China’s Ministry of Finance and one of the big four asset management in Beijing since its inception at the late 1990 (Yu & Ping, 2021, April 15).

Huarong had 1.73 trillion yuan of assets that are roughly equivalent of $265 billion. In addition, it has $22billion of international bonds outstanding, which worries many investors. That international bonds are issued by offshore units without direct guarantee by Huarong Asset Management Co. Three quarters of Huarong’s global bonds are covered by Keepwell agreements only (Yu & Ping, 2021, April 19).

Considering that Huarong is the largest holder of Chinese bad-debts in the late 1990s, it seems that Chinese government stops backing off Chines State owned institution and forces restructuring its debt structure. For example, in 2019, Baoshang Bank Co. was seized to reduce offshore credits and showcased it (Yu & Ping, 2021, April 15).

Some analysts including Chang Wei Liang at DBS Bank, see long headwinds for Huarong who needs to restructure its complex book. By contrast, others see overreaction in market selloffs. For example, Shujin Chen in Jefferies said Huarong is too big to fail considering its direct ownership of Chinese central government (Yu & Ping, 2021, April 19).

Overseas investment needs multiple scenarios where investors are fully prepared for, including political climate change to credit market as Chinese government seems to ponder if it shall continue or discontinue its full hearted supports.

Cite this as:

Rachel Kim (2021, April 21). Chinese Bond Market Jittery, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2021/04/21/chinese-bond-market-jittery/

Yu, X. & Ping, C.K. (2021, April 15). Chinese Asset Manager Suffers Bond Selloff After Delaying Results, Wall Street Journal, retrieved from: https://www.wsj.com/articles/chinese-asset-manager-suffers-bond-selloff-after-delaying-results-11618496945

Yu, X. & Ping, C.K. (2021, April 19). Chinese Asset Manager’s Bonds Recover After Selloff, Wall Street Journal, retrieved from: https://www.wsj.com/articles/chinese-asset-managers-bonds-recover-after-selloff-11618826324

View on the US stock markets and a pick by Matthew McLennan

Mr. McLennan manages the $89 billion global value team at First Eagle Investment Management, including the First Eagle Overseas (SGOV) and First Eagle Global (SGEN) funds. He succeeded a famous investor, Eveillard. In 1990s, when he ran value-oriented portfolio at Goldman Sachs, he did not wish to jump in tech bubbled market. In 2008, when Eveillard met McLennan first, that story got Eveillard’s attention (Green b, 2021, April 15).

Matthew McLennan sees warning sign mainly due to the US federal government money supply over the last year. When the US federal government reduce money supply from the current  25% to  10%. In addition,  he thinks that Bitcoin and SPAC are mistakenly viewed as growth stocks (Green a, 2021, April 15).

In terms of domestic companies, he sees Oracle as a growth company, in that Oracle launches a autonomous database, which will give more edges on its leading position at Enterprise Resource Planning (ERP). Oracle has transitioned its traditional software license business model to cloud service one (Green b, 2021, April 15).

Green, W. (2021, April 15 a). A Top Fund Manager Is Worried About Speculative Excess. 2 Stocks He’s Willing to Bet On, Barrons.com, retrieved from:  https://www.barrons.com/articles/a-top-fund-manager-is-worried-about-speculative-excess-2-stocks-hes-willing-to-bet-on-51618520053

Green, W. (2021, April 15 b). How Growing Up With No Hot Water Shaped One of the World’s Greatest Investors, Barrons.com, retrieved from: https://www.barrons.com/articles/how-growing-up-with-no-hot-water-shaped-one-of-the-worlds-greatest-investors-51618520304

Polarized Global Economies Triggered by Covid-19 Pandemic

The response to Covid-19 pandemic has been polarized between the past Trump administration and current Biden administration. As different approaches and manners to covid-19 go, people has gathered and shared similar views using social media. According to Natioal Intelligence Council report (Strobel & Volz, 2021, April 8), these polarized view and responses were not limited in US politics. Globally, authoritarian regimes used this Pandemic as a great opportunity to crack down civilian protests in Hong Kong, Myanmar, and other countries. Thus, Covid-19 pandemmic has been the most singular global disruption since World War II (Strobel & Volz, 2021, April 8).

Biden Administration printed out dollars to help those who have been locked home due to Pandemic. Temporarily, US dollar signaled weak signs and emerging markets showed strong economic prospects particularly at the end of 2020.

US dollars are coming back strongly in the first week of April, 2021, partly due to bright economic prospects in the USA(Hirtenstein, 2021, April 8). Due to this strengthening US dollar, Brazil, Russia, Turkey, and Mexico have been dealing with their currencies depreciation and investment outflow (Hirtenstein, 2021, April 8). Accordingly, they have increased interest rate.

As Natioal Intelligence Council reports (Strobel & Volz, 2021, April 8), the Pandemic made emerging economies dragged down. Most countries have focused on their domestic issues and left other issues behind.

Bird, M. (2021, March 30). The Vietnamese Recovery Is Made in America, Wall Street Journal, retrieved from: https://www.wsj.com/articles/the-vietnamese-recovery-is-made-in-america-11617095869

Hirtenstein, A. (2021, April 8). Investors Sour on Emerging Markets as U.S. Prospects Brighten, Wall Street Journal, retrieved from: https://www.wsj.com/articles/investors-sour-on-emerging-markets-as-u-s-prospects-brighten-11617869893

Strobel, W. P. & Volz, D. (2021, April 8). Covid-19 Fuels Inequality, Political Divide, Authoritarianism World-Wide, U.S. Intelligence Analysts Say, Wall Street Journal, retrieved from: https://www.wsj.com/articles/covid-19-fuels-inequality-political-divide-authoritarianism-world-wide-u-s-intelligence-analysts-say-11617890436

Redefining Video Game Industry: Microsoft(MSFT)

In game industry, video game consoles are important for players to access particular games. If you have Sony’s console, PlayStation 5, then, you may play Sony’s games. Having been in this industry longer than any other companies, Sony has been stronger than Microsoft particular in Europe and Asia; PlayStaion has been a better tool, as well.

Something interesting happens recently in this Status Quo relationship between Microsoft and Sony.  Xbox Live membership reached 100 million users, has tripled during the Xbox One life cycle due to Microsoft’s duel strategies: software and cloud services (Gallagher, 2020, September 18). Microsoft enabled users to stream any Xbox One game to a mobile device (Needleman, 2019, June 9).

In the past two decades, Microsoft has expanded its presence in gaming markets (Aryedlund, 2002, January 7; Guth & Wingfield, 2006, April 26). In 2013, Microsoft launched its Xbox One equipped with motion sensors and Skype technology (WSJ, 2013, May 29). However, it did not impress much to investors and game players.

Under Satya Nadella, however, Microsoft fortified its position against Sony by acquisitions of Mojang AB for $2.5 billion in 2014 (Needleman, 2018, June 11) and by recent acquisition of ZeniMax Media Inc for $7.5 billion (Tilley & Needleman, 2020, September 21).  Thus, Microsoft has increased gaming portfolio to 23 games from 15. Now, Microsoft promised 60 games available in its new coming Xbox One System and Windows PCs. Its new console has custom-designed processor with Advanced Micro Devices. Microsoft focused on its subscription services such as Game Pass and Xbox live. It seems that Satya Nadella sees something in video game industry, when he said, “Gaming is a much bigger market than it ever was”(Tilley & Needleman, 2020, September 21).

 

Please cite as:

Rachel Kim (2020, October 21). Redefining Video Game Industry: Microsoft(MSFT), The Blue Ocean Management.com, Retrieved from: https://theblueoceanmanagement.com/2020/10/21/redefining-video-game-industry-microsoftmsft/

 

 

References:

Aryedlund, 2002, January 7, Barrons.com

Needleman, 2018, June 11, Wall Street Journal

Needleman, 2019, June 9, Wall Street Journal

Gallagher, 2020, September 18, Wall Street Journal

Guth & Wingfield, 2006, April 26,Wall Street Journal

Tilley & Needleman, 2020, September 21, Wall Street Journal

WSJ, 2013, May 29, Wall Street Journal

New Energy Markets are Getting Hot

Click here if you want to hear this article: Audio Provided

Following the previous hydrogen forecasts from Morgan Stanley and by Goldman Sachs(Goldstein, 2020, September 23), the BofA team (Alpert, 2020, September 30), McKinsey counted five major industries will replace their fossile energy with new type of renewable energy (McKinsey, 2020, October 5). They are transportation, power generation, industrial fuel, fuel for residential and commercial buildings. The competition among wind power, solar power, hydropower, and nuclear power has gotten high. By 2050, according to Bank of America research team, clean-hydrogen industries could see $2.5 trillion in annual revenues (Alpert, 2020, September 30).

Knowingly, Bill Gross bets on the two companies: Energy Vault store solar and wind power for use on cloudy or windless days; Heliogen, uses mirrors to generate the intense heat needed to make hydrogen, as well as steel and cement (Hodari, 2020, October 6). They are not in public stock markets yet backed by SoftBank. McKinsey highlighted transport industry where fuel cell electric vehicles (FCEVs) might be better for American trucks running long distance Plug Power (PLUG) and ITM Power (ITMPF) (McKinsey, 2020, October 5). These two companies are publicly traded, so you can invest them.

The BofA survey listed the industrial gas giants: Linde (LIN), Air Liquide (AIQUY) and Air Products and Chemicals (APD); hydrogen fuel cell specialists: Plug Power (PLUG) and ITM Power (ITMPF); the motor vehicle suppliers:Cummins (CMI), Daimler (DDAIF), Volvo (VLVLY), Toyota Motor (TM) and Hyundai Motor (HYMTF) (Alpert, 2020, September 30). They are all good options for long-term investment.

When markets show no clear direction, it is time for value investors to identify future trends that will come soon and dominate markets in the long run. When you are on the right strong wave, you can ride long.

Cite as:

Rachel Kim (2020, October 7). New Energy Markets are Getting Hot, The Blue Ocean Management.com, retrieved from: https://theblueoceanmanagement.com/2020/10/07/new-energy-markets-are-getting-hot/

References are as follows:

Alpert, 2020, September 30, Barron’s.com

Goldstein, 2020, September 23, Barron’s.com

Hodari, 2020, October 6, Wall Street Journal

McKinsey, 2020, October 5, Wall Street Journal and GLOBE NEWSWIRE

Mortgage Insurance Companies Bounced Back

US investors and market participants learned so much from 2008 Financial crisis when equity market sunk deep and recession sat in briefly. This time when Covid-19 pandemic hit, Fed ensured both markets as early as March 2020, equity market and consumer spending remain working, so that when economic activity regains, market will recover fast at its full length.

Now, September 2020 we have some data available showing what people have done during the lock-down. According to the earnings report in August 18, Home Depot had its highest revenue growth, 23% up from the last year,  in its last 20-year-business history (Grossman, 2020, Aug 18). Likewise, O’Railly, auto parts retailer also outperformed its analysts estimate, showing that consumers spent time to repair and maintain their cars home (Lee, 2020, July 30). Similarly, US consumers have bought many DYI items from Etsy, Michaels, and Shopify to spend time home productively.

What is the difference between 08 and 2020? In 2008, housing markets were overvalued, and mortgage securities were dysfunctional. In 2020, housing markets are not causing the problems. By contrast, governments asked consumers to stay home. Actually, as the previous article mentioned, more people even bought houses.

Wait! We did see this movie before. Even after the deepest troubled era, essentially, 2013 mortgage insurance companies, Essent Group, Radian Group, MGIC, and NMI Holdings, bounced back, their shares are up 62% in 2013 (Scism & Timiraos, 2013, September 18).

Then, mortgage insurance companies should be in better place than now, in that housing markets are considerably healthy.

Cite as:

Rachel Kim (2020, September 19). Mortgage Insurance Companies Bounced Back, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/category/theblueoceanmanagement-com/market-trend-foresight/housing-market/

 

References:

Grossman, 2020, Aug 18, Wall Street Journal

Lee, 2020, July 30, Wall Street Journal

Scism & Timiraos, 2013, September 18, Wall Street Journal

Bifurcation in Mortgage Loan Markets

 In early March and April when Covid-19 pandemic just started, mortgage markets sunk steeply. After that short period, there has been bifurcation in mortgage markets recovery between jumbo loans, i.e. larger than $510,400* and conforming mortgage loans. Before Covid-19, jumbo loans were viewed as less risky, as they were owned by wealthier customers (McCaffrey, 2020, July 27). That has changed in Covid-19 pandemic when Fed intervened.

Most banks and non-bank lenders heightened lending standards of jumbo loans, particularly required almost perfect credit scores and high downpayment of  even 35% of the principle (McLaughlin, 2020, June 25). As of June 16, 11.8% of jumbo loans were in forbearance, compared with 8.7% of all mortgages (Black Knight, 2020, July). Please see the table below.

Possible reason that jumbo loans, wealthy house owners, went delinquent higher than conforming loans can be found at the Care Act that government agencies stepped in for defaulted monthly payments of conforming loans. Federal Reserve decisively prevented mortgage market from a possible breakdown as Financial crisis in 2008 and bought unlimited amount of mortgage backed securities (Federal Reserve, 2020, March 23). This measure made conforming loans looking much safer to lenders, than jumbo loans that are not protected by the Care Act. A jumbo loan is too big for government-backed mortgages (McCaffrey, 2020, July 27).

The new strict standards for jumbo loans are one of many changes that Covid-19 brought to us. In addition, shown the graph below, there are high level of new loan originations in June 2020, higher than 2019, which means beyond recovery. Apparently, many people bought their houses (Black Knight, 2020, July).

With low interest rate until 2023, Jerome Powell promised today, September 16, in his FOMC statement, still, buying assets may be MBA finance investment textbook answers. Ideally, the assets must be smaller than jumbo loans. 

 

 

Cite as:

Rachel Kim (2020, September 19). Bifurcation in Mortgage Loan Markets, The Blue Ocean Management, Retrieved from: https://theblueoceanmanagement.com/2020/09/16/bifurcation-in-mortgage-loan/

 

 

 

*Note1: in the high living cost areas, jumbo loans must be larger than $765,600.

References:

Black Knight, 2020, July, Black Knight’s Mortgage Monitor Report, Black Knight Inc.com

Federal Reserve, 2020, March 23, Federal Reserve announces extensive new measures to support the economy, Federal Reserve.Gov

McLaughlin, 2020, June 25, The Jumbo Market Shows Signs of Heating Up, Wall Street Journal.com

McCaffrey, 2020, July 27, Jumbo Mortgage Rates Are No Longer the Cheapest Around, Wall Street Journal.com